AA on track despite extreme weather

AA’s insurance division has seen a 7% growth in motor policies.

The AA is on track to meet full-year expectations as the breakdown recovery and car insurance firm brushed aside this year’s unseasonable weather.

The group said in a trading update that it is set to report trading earnings of between £335 million to £345 million this financial year.

This is despite the AA flagging March’s Beast from the East and the recent heatwave as having led to 1.91 million breakdowns in the first half of the year, an 8% increase.

“This was significantly higher than both our expectations and the average over the last 10 years due to the extreme weather conditions.

“This resulted in increased costs of third-party garaging to supplement our own patrol availability which was partially offset by the additional revenue generated from our pay-for-use B2B contracts,” the firm said.

AA added that its paid membership base declined by 1% in the period to 3.25 million as it was hit by a regulatory pressures, including renewal price transparency, and increased competitor activity.

But AA’s insurance division has seen a 7% growth in motor policies to 659,000 since July 2017, and the firm is making “good progress” with stabilising the decline in the home policies.

AA shares were up 1.3% at 115.7p in morning trading.

Michael Goltsman, analyst at Citi, said: “Confirming full year 2019 guidance despite the extreme breakdown levels indicates substantial buffer within financial guidance, which can present upside to full year 2020/21 consensus forecasts once breakdown activity normalises.

“We are buyers and expect the investment programme to support a return to earnings growth and a strong recovery in free cash flow.”

Earlier this year, the firm saw its stock market value plunge by nearly a quarter after the warning over profits.

The AA has also been embroiled in a legal spat with its former executive chairman Bob Mackenzie, who was sacked last year for gross misconduct.